Startup Barriers

Ten years ago, it was very difficult to start a business. If you wanted to bring your idea to fruition, there would be massive barriers to overcome — incorporation, seeking tax advice, learning about business management, et cetera. Many of this meant having in-person interactions with a variety of different professionals, which consumed both a large amount of time and a lot of personal energy that could be better used developing the idea the business is focused on.

Today, however, things have changed, and it is incredibly easy to start a business. The first major development was that services such as Stripe Atlas have been formed which allow people to incorporate and seek basic taxation advice without having to work with a legal team. One can simply fill out a form, sign a few documents, and then a legal entity will be available to use for the business. There is now a large amount of supporting infrastructure online which makes the logistics of starting a company incredibly simple, ranging from managing annual tax obligations to filtering out the best candidates for a first-hire.

In addition to this, access to information about business management and development is more readily available. When one has a query about how to run their business, how to hire their first team member, how to start raising capital, or anything else, then they can search it on the internet and read answers from thousands of experts and people who have been in the same position as them. The democratization of information about starting a business means that we can avoid a lot of the mistakes that other people have made, and founders can, therefore, focus on building their business rather than resolving any errors. This access to information also extends to other subject matters, such as development and design, which makes it easy for founders to acquire the skills they need to develop their product without having to hire specialists to complete these tasks.

The third thing that has changed is that it is now cheaper to start a business — a result of the two aforementioned factors. Services such as Stripe Atlas have meant that anyone can easily incorporate and technology has made it so that Stripe can offer these services at a lower rate than a traditional attorney. Access to more information means that there is less of a need to outsource common tasks in business management and product development because the founder can easily search answers to questions online.

These developments have meant that now almost anyone can start a business. If you have an idea and are driven toward a certain goal and vision, then you can get started right now. Legal barriers are no longer as prominent because they can be easily outsourced. Information barriers are not as important because the internet contains the answers to most common questions, in addition to a plethora of content about how to run a business and develop a product. The internet has also made it easy to develop an immediate audience for a product. There are no location barriers for people to patron an internet business, and so a product need only satisfy the needs of a select group of people around the world, rather than the needs of a whole community — like businesses before the internet.

Despite these innovations, I have noticed that there are still a lot of people who are capable of starting a business who decide to avoid doing so. A significant amount of economic value is yet to be realized because people who have what it takes to be a founder decide to pursue other career paths. I don’t think that we have reached a critical mass of “founder-types”, or those who have what it takes to found and operate a startup. If we can encourage more people to start companies in their area of specialty, we can increase the quality of services around the world, democratize access to those services, and thus generate a large amount of economic value. In this essay, I am going to discuss a few of the barriers to starting a startup I have identified, and what we can do to overcome them.

Risk

The most commonly cited concern about starting a company is that it is incredibly risky and can easily result in failure. Indeed, this is true. Most companies fail, and this is just a natural part of capitalism. When a company fails, a new and better company will replace it and offer higher-quality services at a cheaper rate. However, this truth can be incredibly difficult to internalize — knowing that failure is common and that with failure can come major hardships. The most notable risk associated with starting a company is that you could lose all of the money you have invested into the business.

I think the best way to address this concern is to reframe how we perceive risk in startups. If you start a company, you stand to lose 1x what you have invested in the company. That will include any liquid capital you have used to cover product development, the time you have invested in running the business, and anything else that you have had to set aside while starting the company. Even though you stand to lose 1x what you have invested in the company upon failure, you also stand to realize massive gains if you succeed. If you start a successful company, you could realize gains as much as 100x or 1000x what you had invested in the startup initially. Hard work is rewarded.

One of the creative solutions I have to mitigate entrepreneurial risk would be for founders to pool together their equity, and successful founders would some of their upside with their fellow pool members — those who believed in them when nobody else did. Many founders already pool together percentages of equity in their companies because it can be seen as a way to de-risk entrepreneurship. If you fail, you still have the ability to realize a return by helping someone else in your pool succeed. In addition, if you fail, your fellow pool members will have a financial incentive to help you succeed, because what is good for you will be good for all members of the pool. I feel as if this will help encourage more founder-types to launch more experiments and explore starting a company in more depth because they are protected from some of the downside risk associated with starting a company.

Career risk is also another concern cited by people who would make good founders. Career risk refers to when you feel as if you would be unable to return to your previous capacity if you were to start a company and fail. Many people who start companies end up not being able to return to the high position they were previously in, at least in the same company they were previously working with because the position would have been filled. However, starting a company — even if you fail — looks good on a resume. Starting a company is a very educational experience and allows founders to work in a variety of capacities that they would not traditionally work in. If you have learned something from starting a company, then other employers will still be interested in you. In fact, many employers value founder-types on their team because they developed strong interpersonal skills in their time running a company that can be very useful. [1]

Another risk associated with starting a company is reputation risk. Many people refrain from founding a company because they are afraid of being seen as a failure, or someone who did not commit enough of their time and money into their project which caused it to fail. Also, many people do not start companies because although they have a good idea, other people see it as a bad idea and an invisible pressure exists to not start a company based on that idea. This effect is especially prominent in what would be referred to as a “toy market”, where the idea you have is seen more as a novelty than a serious business idea

The best way to address this would be to further embody the culture of starting a company and accepting failure. In Silicon Valley, the technology capital of the world, there is a strong social acceptance of founding a company and failing. Silicon Valley sees failure as practice for success, rather than one making a series of mistakes that led to their inevitable failure. The framing of entrepreneurship is important here. In cities and cultures where failure is more accepted, people are more likely to start companies because they know that even in the worst case, people will still see them as an ambitious person who had a vision and was passionate about it.

In broader society, this will be harder to adopt. In most areas of the world, startup failure is seen as a signal that what you have been doing is incorrect and you should stop and do something else. In fact, many people use a failed company as an excuse to coerce people to pursue a more traditional path. If you say to your parents at the age of 18 that you are going to start a company, and you fail one year later without realizing a return, then they will likely pressure you to find a “real job” to make money and live a stable career. There are many reasons why parents do this — which are outside of the scope of this essay — but the main one is that parents want to see their children succeed, and they want to protect their children from even more failure.

Our culture needs to adapt to accepting entrepreneurship as a way in which an ambitious person can express themselves, which will help change the way we see startup risk. A lot of the economic value that has been generated in Silicon Valley has been a result of the culture of failure in the region. If someone has started a company and has failed, there will be people who encourage them to start another company when they have another idea. This is because Silicon Valley understands that failure is not the end, but rather the start of a journey. In fact, many successful startup founders have founded a few companies or side projects prior to starting the company that made them successful. This is because when they failed, people encouraged them to get back up and work even harder toward their vision.

The rise of Internet-based entrepreneurship has decreased the personal risk effects associated with starting a company. If you start a tech company and talk about your failure online, most people will convey their sympathy and offer to help you pursue your next venture. This is because most people online have already started and failed at something in some form — a blog, a podcast, or even a startup — and therefore they understand the impact of failure and have a deep-rooted belief that failure is only practice for success.

Indeed, there will always be people in-person — family members, friends, et cetera — who believe that if you have failed you should move on. However, if you go online there will be a community of people who want to see you start something new and move on from the failure of your last business. People online will tell you that can use the knowledge you acquired from your previous company to understand what not to do, rather than as a cautionary tale about what would happen if you started another company.

Risk is also a major cultural factor in terms of students who have the burden of debt. There have been many studies which show that students with debt are less likely to start a company because they need to find a stable job to pay off their debt. This means that fewer people who would make great founders end up doing so, thus causing society to lose out on all of the economic value they could generate by starting a company. Income Share Agreements are resolving this issue by allowing students to pay for their education in exchange for a percentage of their future income, but there is still a long way to go. As ISAs become more popular, I believe that more ambitious young people will start companies rather than pursue a traditional path because they will not have to worry about the burden of debt. There are a few changes I propose to help facilitate the growth of these agreements, but those are outside of the purview of this essay.

The Journey

Perhaps the largest barrier that prevents more talented people from starting companies is the “hustle hard” culture that exists. This culture is based on the expectation that we should over-optimize our lives in order to yield as much output as possible, to the detriment of everything else in our lives. I have seen this culture take many different forms, but the commonality between them all is the fact that you need to be working as much as possible in order to succeed in a startup. This image causes many people to be left with a negative interpretation of what it means to start a company, and what it means to be a co-founder of a company to that end.

Starting a company is one of — if not the — most stressful event of an individual’s life. Startup founders have to adapt to new environments every day, and deal with a variety of different issues within a certain time frame with which they may not have had prior experience. The journey of starting a company — with all of its flaws — is wonderful and filled with exciting new experiences and the ability to learn a large amount about new subjects in a short period of time. Founders have full autonomy over the work that they are doing and can spend their days working toward a vision that they feel passionate about. Founders have the ability to inspire real change in the world and contribute to a cause much greater than themselves.

Founders do not need to work for twelve hours per day, nor spend entire nights developing solutions to difficult problems. Those that believe that being a founder is about working hard all of the time are mistaken, and that attitude can often lead to burnout. Because starting a company is a rollercoaster, you need to be in the right mindset all of the time and ready to contribute whenever you are needed. However, you can only achieve that goal by investing time in personal care and spending time with the people that you care about.

This negative impression means that many people decide entrepreneurship is not a viable path because they cannot commit that level of time each day toward their project — perhaps the person has a family, or a job, or another commitment. The best way to address this would be for existing founders to talk more about the benefits of starting a company rather than sharing their war stories about how they did not sleep for days because their company was about to fail. These events do indeed happen, but many prospective founders are left with the image that intense sprints like that happen every week, which is not true.

The glorified version of “founderhood” portrays the fact that you have to respond to every single email you have as soon as you get up otherwise you will fall behind. Rather, you should spend your mornings cultivating a good morning routine that prepares you for the day. The image of people working all day every day is a by-product of our society’s transition toward being busy and productive — and neglects to mention the importance of self-care and personal introspection. Sustainability in the life of a founder is key, and without it, it is difficult to start a successful company.

Starting a company is also a 10-year commitment. Successful founders have internalized the fact that they will be working on their company for the next 10 years, and are in the mindset that they cannot give up on their vision. This is why it is important to work on something that you are passionate about. If you are unable to commit yourself toward the vision for 10 years, through all of the ups and downs of starting a company, then you are very likely to fail. Those who are unable to commit to the journey of starting a company should not do so, and should instead consider pursuing another path in order to prevent failure in the future. This barrier is important to consider because many people make the claim that starting a company is simple, but in actuality, it is a difficult journey filled with negative experiences — the cost of building a successful company.

Another interesting barrier I have seen is the fact that entrepreneurship is not seen as a viable career for young people. Starting a company has not yet been accepted by the broader populous, and most people believe in the traditional “one-track” system: you will graduate from high school, attend college, and then find a well-paying job at a good company in exchange for your hard work studying. As aforementioned, many parents do not believe that starting a company straight out of high school is a good career path. I think that for most people starting a company as soon as they have graduated — or dropped out — is a good path for those who know they can make the 10-year commitment, but that excludes a large number of young people.

In order to overcome this barrier, society needs to accept entrepreneurship as a good path to pursue. Perhaps the easiest way to do this would be to encourage schools to teach more business fundamentals, especially at earlier stages. Schools should teach the basics of business — supply and demand, making something people want, basic company structures, etc — which will not only allow them to gain broader context into how the world works but will also prepare them for future entrepreneurial work if they are interested.

Another component in this societal change would be parents perceiving starting a business as a valuable path that can present great opportunities for personal and professional growth. We already teach young kids how to run a lemonade stand which, for most children, is a very liberating experience — their labor is compensated by those interested in using their services. This should be scaled up to include more business-like ventures, especially in teenage years, to encourage young people to teach themselves more about entrepreneurship and to learn by doing. If parents make changes to allow their children to pursue basic entrepreneurial ventures, like a lemonade stand or a small business community project, then society as a whole will gradually start to be more interested in entrepreneurship.

Toy Markets

Toy markets refer to ideas that look like toys to start but turn out to be serious businesses that are viable in the long-term. Most people who accept entrepreneurship as a viable path have the idea that in order to start a company, you need to be targeting an existing market that is already large and proven to exist. This makes sense because it is easier to tell someone you are starting a business if you can prove you are addressing a real problem in a market with which they may be familiar.

However, this logic is dangerous to internalize. Startups like Google and Snapchat at their inception looked like toys — there was no clear path to profitability. In the 1990s, the search market consisted of dozens of engines and people thought that there was no more room in the market because it wasn’t a profitable business.

However, Google proved that with the right approach, internet searching had the potential to generate a lot of revenue. Today, we see Google as having created a major market — they targeted an issue without a strong path to profitability, and paved their own future. The same effect exists with Snapchat. Originally, Snapchat was not a revenue-making platform and people saw it as a toy — and a method of communication — that did not resemble a viable business. As they continued to develop their platform, they showcased that their platform provided real value to a large audience of people, and were able to monetize it.

The reason this is such a big barrier to entrepreneurship is that people think you need to have a serious idea to start a company. Most of the most successful technology companies today started out with an idea that looked like a toy. Investors understand the importance of toy markets because it is often startups building in these markets that produced outsized returns. For example, Amazon was for selling books online when the internet was not very popular — a very small market — until they realized their model could be extended further and was indeed viable in the long-term. Investors are looking for the “next big thing”, and the only way to do that is to make dozens of bets in risky companies that are subverting the norms and building something completely new.

If a founder is operating in a toy market, it can seem difficult to justify continuing if the startup hits a roadblock. If you are developing an aesthetically pleasing calendar app without a clear path to revenue, it can be easy to give up because other people do not see what you are doing as a viable business — they see it as a side-project. This external pressure can make founders think their idea is not solving a real issue, and so they stop believing in their product. This pressure discourages many people who would make great founders from pursuing businesses and ultimately stifles our society’s economic and technological development.

Toy markets have the ability to generate huge businesses, but the difficulty is in sticking with an idea that you are interested in through all of the ups and downs, and working toward your vision even when nobody else believes the market exists. [2]

Benefits

One startup barrier that has yet to be addressed is access to the benefits that larger companies offer. When one is presented with a job offer from Google, Digital Ocean, or another large company, they are often offered medical and dental coverage, a favorable paid-time-off package, the prospects for bonuses, and other perks. In a startup environment, it is very difficult to offer employees these benefits because all of the money that has been raised or invested into the company by the founders is normally needed to fund product development and growth. Most early-stage companies do not offer healthcare coverage because it is too expensive to offer, and that capital can be used more efficiently to help the company grow.

This is a very acceptable barrier for many people starting a company. I think the best way to consider benefits is that starting a company or working for an early-stage company is risky and volatile, and is often compared to a rollercoaster ride. There is no way to fully mitigate the risk associated with starting a company (at least yet). If you sign up to work for or found a startup, you must understand that additional perks will not be accessible for the first few years, because the business simply cannot afford them. With that being said, I feel as if there are a few ways in which startups could change on a cultural level to encourage more people to join or start a company.

There are still a few benefits that startups can offer that cost very little, but would go a long way. The first would be access to centralize the value of promoting positive mental health in the business. This may take the form of offering access to a trained mental health coach, covering an online course on mental health taught by professionals or making mental health resources more readily available to access. This is a small cost for founders and would help encourage more people to join an early-stage company in their infancy. The stresses associated with working at a very early-stage company could be reduced by making mental health a more important part of the company’s culture. Employees should feel that taking a personal day is allowed and that spending time on self-care is a good thing, rather than feeling like they need to work every hour of every day or they will be replaced.

Another startup barrier I would like to see resolved is access to immigration services for early-stage companies. Perhaps venture capital firms could help out here, or a specific company that takes a share of future revenue in exchange for providing immigration services. In fact, accelerators and incubators such as Y Combinator and XX by WeFunder already offer immigration services to founders. The idea would be that if founders had access to a form of affordable immigration support, then they could work more in-person and could move to wherever they feel is best for their startup. Indeed, as I write later, location is not a barrier for starting a company. However, being able to move to the place you are interested in working is still a powerful way to encourage entrepreneurship. This may be more difficult when a company is just a few founders working together in a basement, but as the company starts hiring, immigration support should be offered to all employees who are interested.

Starting a company offers people many benefits which large companies cannot offer, and are of great personal importance to those who decide to join or found an early-stage company. The first would be that startups rarely have any bureaucracy because startups need to be able to move quickly in order to respond to changing market conditions and keep up with growth and changing customer needs. Therefore, those who start a company or join an early-stage company will have the ability to work faster and will have fewer barriers constraining their impact on the business. The level of freedom that working at a startup offers is liberating — you can guide the future of the company with limited barriers in the way.

The second major benefit — which is often not well advertised — is that starting a company or joining a startup offers strong career growth opportunities. If you join a company when they are hiring for their core engineering team, then you may be able to transition to a senior engineering role in the future as the company grows and the engineering team expands. This effect exists in all areas of the business — marketing, operations, et cetera. Those who join early have the ability to move up toward important positions as the company grows because they have been a critical component in the company realizing that growth in the first place. You may join a startup as their second full-stack web developer, but over time that could easily progress into a head of engineering role, or even CTO if your work has been critical in the business’ growth.

Artificial Barriers

I think it is worth noting that there are many artificial barriers that many people cite with regard to founding a company — excuses per se. I feel as if it is important to address briefly some of these barriers, and why they should not impact one’s decision to start a company or not start a company. The first barrier that people use is that there is a “lack of capital” where they are, and they would never be able to raise the venture money they need to start a successful company. I would like to first note that venture capital is not a prerequisite for starting a successful company, but rather something that can assist in your growth. Many companies have never accepted venture capital, which shows that a lack of access to capital is not a real barrier.

Another way to consider this is that many venture capital investors are happy to invest in companies that are outside of their area of focus. The goal of venture capitalists is to deploy capital into startups they think could be the next unicorn — the next startup worth upward of $1 billion — and location will rarely be considered as a barrier for making an investment. If you are based on Springfield, Illinois, for example, San Francisco-based venture capitalists may still be interested in investing in you if you are working on an exciting new product that could be the next Facebook or Google. Equity crowdfunding also exists, which allows a startup to raise money from the crowd in exchange for a portion of the equity in their company. Running an equity crowdfunding campaign has no location requirements, and so you are free to work from wherever you want. [3]

Another barrier I have noticed is that many people feel as if they need to be based in Silicon Valley, New York City, or another “programmer’s market” in order to succeed. This is based on the opinion that the best technology talent is concentrated in certain areas, and a startup needs to move to where the developers are in order to hire them. This is not true for a number of reasons.

Most developers are happy to work remotely for a company they are passionate about — many do — and although they may be based in areas like Silicon Valley, they are still open to remote working. In fact, most of the best developers are those who are driven not by location or salary, but by a deep-rooted belief in the vision of the company and their ability to make a difference. If a coder is going to be typing in a development environment anywhere they work, then they may as well be working for an impactful company that is making a difference. Overall, programmers are willing to work remotely, and startups do not need to move to programmer markets in order to recruit the best talent.

I think in many respects it is easier to start a company in Silicon Valley. It is easier to make it in the craft beer industry in Portland because there is already a community of craft beer lovers who are always interested in trying new brews. Silicon Valley’s culture is unmatched around the world, and the area offers access to more investors, access to a great pool of talent, among other things. There is no substitute for the founder-focused mentality that exists in Silicon Valley, and the culture of failure as a practice to success is very prominent, as aforementioned. I think that even as remote working becomes more popular, there will always be people who prefer to work from cities. The main point is that working in Silicon Valley is not a sure-fire way to succeed, and many companies are still very successful in other areas, even if they are not startup communities. As living costs in the Bay Area rise, many founders are opting to not move and instead work remotely.

In addition, I think that in the future the rise of remote work will make many people think twice about moving to San Francisco and the Bay Area. If you can incorporate, raise capital, and hire talent from anywhere in the world, then there is no longer a need to work from San Francisco. Product Hunt, for example, has a globally distributed team of workers, and most of their employees are not based in SF, which is where they are based. Buffer and InVision have fully remote teams and do not have a main office from where workers are required to work. I have a lot of thoughts on the topic of remote work and how this would change the venture capital scene, although that topic deserves its own essay. Suffice to say, location is not a barrier.

Venture capital is also an artificial barrier. This barrier is a direct descendant of the amount of risk that founders take on when starting companies. Many people believe that in order to start a successful company, you need to raise a round from either venture capitalists or angel investors in order to finance your growth. Most successful companies only raise venture capital after developing a product and showcasing the product’s viability in some form — most commonly through hosting a beta and getting customer feedback. Starting a company is a risky endeavor and venture capital can help mitigate some of the personal risks one takes. But there is no requirement to raise venture capital in order to start a business, and, in fact, many people are foregoing venture rounds and instead financing their tech business with their own personal funds. [4]

I think another factor at play here is that venture capital gives people some sort of validation in their work. If they can prove to an investor what they are doing is viable, then that can give them a boost of confidence which encourages them to continue. The best way to stop founders from being so obsessed with raising venture capital rounds before having a real product is to encourage them to speak with users and let them validate the product. Users are the people who are actually working with the business and the product and are therefore in the best position to validate the business. This plays into a broader theme of insecurity in starting companies — people feel like they need a lot of validation to start a business. This makes sense because starting a company is very risky. However, one does not need to seek that validation from investors — they can just go build a product and talk with users.

In sum, there are a lot of barriers that many people cite as the reason why they have not started a company. They may be the fear of reputation risk, not being present in a traditional startup hub, or something similar. Many of these barriers are artificial — the rise of remote work and changing venture trends have reduced our dependency on location to run a successful business. The most effective way to overcome barriers such as career and reputation risk, and to help people understand that entrepreneurship is a viable path, would be to invest our time in convincing others of the potential of entrepreneurship.

One important thing to remember is that you should never start a company if your motives are not pure. Start a company if you have a vision for the future that you want to develop, not because you want to make money. Corrupted motives result in fewer people pursuing startups because they see them as riskier ventures, whereas it is only because many people who try to start companies do it for the wrong reasons.

Without startups, our society would not be nearly as technologically developed. Those who have a strong and clear vision for the future and a passion for pursuing that specific vision should just get started, and ignore all of the artificial barriers may people cite as an excuse for not starting a company. Starting a company is still an incredibly risky journey and can have major mental health implications, but it is also a very liberating experience — you can work on exactly what you think will help satisfy the needs of other people in the world.

Notes

[1] Interestingly, starting a company is also a good way to break into venture capital. Venture capital firms prefer to hire previous founders — even if they have failed — because they have prior experience running a startup and know what mistakes that founders commonly make. I am not sure how many failed founders pursue a career in venture capital, but it is still an option, even if the founder ends up in a lower-level role within the firm.

[2] Sometimes a toy market turns out to be imaginary — the founder has created a market to justify their product’s existence without there being a real need. This is why toy markets will be so hard for society to address — it is very difficult to tell if you are operating in a toy market, or an imaginary market.

[3] If there is no capital where you are and you have had trouble fundraising because of your location, then you could just move. Indeed, you may have family ties and other commitments which restrict your ability to move. However, as I mentioned, your location is not a major determinant in raising venture capital, but if you need to talk with investors in-person frequently, then moving may be your best option.

[4] There are a few notable exceptions to this rule. BioTech and hardware startups usually require at least some form of upfront investment in order to get a product to market because of the large upfront research and development costs associated with starting a company in those industries.